5- chap 5 and 6

5- chap 5 and 6 - Chapters 5 and 6: Measuring Economic...

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Chapters 5 and 6: Measuring Economic Activity, Price Level, and Inflation A. Gross Domestic Product (GDP) 1. Definition- the market value of all final goods and services produced in a country in a given period of time. Measured quarterly but reported as an annual rate—different in each country, ex: monthly in Canada. (Tops 11 trillion annually in the U.S.) a. What counts and what does not 1. it doesn’t matter if the company is foreign or domestic. If it is produced here, it counts (territories count, too) a. ex: Fords produced in Spain do not count b. Not to be confused with Gross National Product (GNP) 1. Similar, except it measures the production by nationals—citizens and people who live here. a. Hondas made in Ohio don’t count for U.S. but for Japan b. Different because some companies do not employ in the country—Jobs and what is physically done here is important c. Key Words: Final and Market 1. Final- measured because if we measure the production of everything it can be very different a. Parts made in different places don’t count— if we did they would be counted twice (both as parts individually and as the whole) b. Intermediate good- good used in the production of a final good. 2. Market transactions- goods or services exchanged for money. a. Don’t count: i. Goods not produced for market 1. non-market activity- goods produced for personal use and not for sale (ex: personal vegetable gardens) ii. Goods and services produced for market exchange but are not part of the legal market. 1. ~15% of all goods and services are exchanged on illegal markets (ex: tips, babysitting, drugs- most are legit). Stuff not declared. d. GDP per capita and intercountry comparisons 31
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1. GDP per capita- goods and services per person a. Higher GDP per capita- higher standard of living. b. Lower GDP per capita- lower standard of living. 2. This is how countries are compared a. Not completely accurate because not all countries have the same underground economy. i. In the U.S., 15% of transactions are not in the legal market. Money made like this still contributes to living standards. In some places in the U.S. and around the world people grow their own food. ii. There have also been changes in non-market/market activity. 1. ex: Childcare. A few decades ago it was provided in the home most of the time. (Non- market to market.) Now it is often paid for. Standard of living was not affected. 2. Two methods of measuring: “A dollar spent is a dollar earned.”- The two approaches will give the exact same total. a. Income Approach (who is earning) i. Wages and salaries plus ii. Profits plus iii. Rents plus iv. Net interest. b. Expenditure Approach (who is spending): y = C + I + G + X – IM i. Consumption (C) plus ii. Investment (I) plus iii. Government spending (G) plus iv. Exports (X) minus v. Imports (IM) 3. Thought Experiment: Can GDP ever be negative? 4. Thought Experiment #2: How is it possible for some countries to
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5- chap 5 and 6 - Chapters 5 and 6: Measuring Economic...

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